UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended April 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________.
Commission File Number: 0-18150
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
(Exact name of registrant as specified in governing instrument)
Delaware 13-3244091
(State of organization) (IRS Employer Identification No.)
2 World Trade Center, New York, NY 10048
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (212) 392-1054
Former name, former address and former fiscal year, if changed since last
report: not applicable
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X
No
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
April 30,
1994 October 31,
(Unaudited) 1993
____________ ___________
ASSETS
<S> <C> <C>
Cash and short-term investments, at cost
which approximates market $ 10,203,515 $ 7,465,589
Real estate, at cost:
Land 18,121,935 18,121,935
Buildings and improvements 145,335,453 144,867,183
___________ ___________
163,457,388 162,989,118
Accumulated depreciation 40,638,077 37,630,627
____________ ___________
122,819,311 125,358,491
Investment in joint venture 2,798,423 2,646,935
Deferred expenses, net 1,585,964 1,776,242
Other assets 3,909,160 4,500,860
___________ ___________
$141,316,373 $141,748,117
___________ ___________
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued
liabilities $ 654,009 $ 1,023,493
Security deposits 286,332 340,408
Deferred distributions 3,712,556 3,712,556
Minority interests in joint ventures 8,725,894 9,064,548
___________ ___________
13,378,791 14,141,005
Partners' capital (deficiency): ___________ ___________
General partners (2,904,650) (2,937,697)
Limited partners ($1,000 per Unit,
177,023 Units issued) 130,842,232 130,544,809
___________ ___________
Total partners' capital 127,937,582 127,607,112
___________ ___________
$141,316,373 $141,748,117
___________ ___________
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
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DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF INCOME
Three and six months ended April 30, 1994 and 1993
(Unaudited)
<CAPTION>
Three months ended Six months ended
April 30, April 30,
1994 1993 1994 1993
___________ _________ _________
________
<S> <C> <C> <C> <C>
Revenues:
Rental $4,492,767 $4,719,156 $9,063,100 $9,369,151
Equity in earnings of joint venture 81,147 45,555 160,561 101,722
Interest and other 201,417 15,171 306,927 272,870
_________ _________ _________ _________
4,775,331 4,779,882 9,530,588 9,743,743
_________ _________ _________ __________
Expenses:
Property operating 1,699,056 1,672,183 3,340,991 3,423,445
Depreciation 1,517,433 1,573,371 3,007,450 3,128,729
Amortization 126,216 142,685 251,604 288,714
Interest - 69,951 - 142,260
General and administrative 183,681 205,700 344,294 368,491
_________ _________ _________ _________
3,526,386 3,663,890 6,944,339 7,351,639
_________ _________ _________ _________
Income before minority interest 1,248,945 1,115,992 2,586,249 2,392,104
Minority interest 145,143 153,519 288,857 307,955
_________ _________ _________ _________
Net income $1,103,802 $ 962,473 $2,297,392 $2,084,149
_________ _________ _________ _________
Net income per Unit of limited
partnership interest $5.61 $4.89 $11.68 $10.60
____ ____ _____ _____
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
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DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
Six months ended April 30, 1994
(Unaudited)
<CAPTION>
Limited General
Partners Partners Total
_____________ ____________ _____________
<S> <C> <C> <C>
Partners' capital (deficiency)
at November 1, 1993 $130,544,809 $(2,937,697) $127,607,112
Net income 2,067,653 229,739 2,297,392
Cash distributions (1,770,230) (196,692) (1,966,922)
__________ __________ __________
Partners' capital (deficiency)
at April 30, 1994 $130,842,232 $(2,904,650) $127,937,582
___________ __________ ___________
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
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<TABLE>
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended April 30, 1994 and 1993
(Unaudited)
<CAPTION>
1994 1993
_____________ _____________
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,297,392 $ 2,084,149
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 3,007,450 3,128,729
Amortization 251,604 288,714
Minority interests in joint ventures' operations 288,857 307,955
Equity in earnings of joint venture (160,561) (101,722)
Decrease (increase) in operating assets:
Deferred expenses (61,326) (288,530)
Other assets 591,700 76,675
Increase (decrease) in operating liabilities:
Accounts payable and accrued liabilities (369,484) 147,942
Security deposits (54,076) 47,489
__________ __________
Net cash provided by operating activities 5,791,556 5,691,401
__________ __________
Cash flows from investing activities:
Additions to real estate (468,270) (556,740)
Additional investment by minority interest 6,466 1,860
Investment in joint venture (175,336) (31,359)
Minority interests in joint ventures' distributions (633,977) (462,237)
Distributions from joint venture 184,409 307,911
__________ __________
Net cash used in investing activities (1,086,708) (740,565)
__________ __________
Cash flows from financing activities:
Cash distributions to partners (1,966,922) (1,327,672)
__________ __________
Increase in cash and short-term investments 2,737,926 3,623,164
Cash and short-term investments at beginning of period 7,465,589 1,527,258
__________ __________
Cash and short-term investments at end of period $10,203,515 $ 5,150,422
__________ __________
<FN>
See accompanying notes to consolidated financial statements.
/TABLE
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DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
(Unaudited)
1. The Partnership
Dean Witter Realty Income Partnership II, L.P. (the
"Partnership") is a limited partnership organized under the laws
of the State of Delaware in 1984. The Partnership's fiscal year
ends on October 31.
The financial statements include the accounts of the Partnership
and the Century Square and Framingham Corporate Center joint
ventures on a consolidated basis. The equity method of
accounting has been applied to the Partnership's 15% interest in
the Taxter Corporate Park property because of its continuing
ability to exert significant influence over Taxter.
The Partnership's records are maintained on the accrual basis of
accounting for financial reporting and tax purposes.
Net income per Unit of limited partnership amounts are
calculated by dividing net income allocated to Limited Partners
in accordance with the Partnership Agreement by the weighted
average number of Units outstanding.
In the opinion of management, the accompanying financial
statements, which have not been audited, reflect all adjustments
necessary to present fairly the results for the interim period.
2. Real Estate
In fiscal 1994, the Century Square joint venture settled a
lawsuit with the developer of the property relating to certain
defects in the parking structure and heating ventilation and air
conditioning systems. Pursuant to the settlement, the joint
venture received $835,000 in 1994. The proceeds were
distributed to the co-venturers according to their interests;
accordingly, the Partnership received $626,250. The joint
venture will receive an additional $100,000 in each of fiscal
years 1995 and 1996. The Partnership recorded these proceeds
which represent the recovery of costs incurred and capitalized
to correct the defects, as a reduction of buildings and
improvements.
3. Related Party Transactions
An affiliate of the Managing General Partner provided property
management services for four properties for the three and six
months ended April 30, 1994 and five properties for the
comparable periods ended April 30, 1993. The Partnership paid
the affiliate management fees of approximately $154,000 and
$161,000 for the six months ended April 30, 1994 and 1993,
respectively.<PAGE>
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DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Notes to Consolidated Financial Statements
(Unaudited)
Another affiliate of the Managing General Partner performs
administrative functions, processes investor transactions and
prepares tax information for the Partnership. For the six
months ended April 30, 1994 and 1993, the Partnership incurred
approximately $261,000 and $262,000, respectively for these
services.
As of April 30, 1994 the affiliate was owed a total of
approximately $162,000 for these services.
At April 30, 1993 aggregate deferred distributions to the
General Partners totalled $3,712,556. Amounts deferred have
been charged against partners' capital and recorded as
liabilities owing to the General Partner.
4. Subsequent Event
On May 26, 1994, the Partnership paid a cash distribution of
$10.00 per Unit to the Limited Partners. The cash distribution
aggregated $1,966,922 with $1,770,230 distributed to the Limited
Partners and $196,692 distributed to the General Partners.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Partnership raised $177,023,000 in a public offering which
was terminated in 1985. The Partnership has no plans to raise
additional capital.
The Partnership has purchased six properties (one of which was
sold in May 1993) and made three investments in partnerships on an
all-cash basis. The Partnership's acquisition program has been
completed. No additional investments are planned.
Real estate, in general, has been negatively affected by a major
cyclical downturn. The downturn has been caused by a variety of
factors including an oversupply of office and retail properties,
continued downsizing by many major corporations and lack of credit
availability for real estate financings and purchases.
These factors have contributed to a general decrease in market
rental rates, an increase in vacancy rates and an increase in
concessions such as free rent and tenant improvement expenditures
for both new and existing tenants. As a result, there has been an
overall decline in the liquidity and market values of real estate
investments.
Real estate markets are generally divided into sub-markets by
geographic location and property type. Not all sub-markets have
been affected equally by the above factors.
The Partnership's liquidity also depends upon the cash flow from
operations of its properties, expenditures for tenant improvements
and leasing commissions in connection with the leasing of vacant
space. During the six months ended April 30, 1994, all of the
Partnership's properties generated positive cash flow from
operations, and it is anticipated that they will continue to do so.
During the first two quarters of 1994, the Partnership's cash
flow from operations and distributions received from joint venture
exceeded distributions to investors and capital expenditures for
tenant improvements, leasing commissions and building improvements.
The Partnership increased its annual cash distribution rate from 2%
to 4% per Unit beginning with the cash distribution for the second
fiscal quarter, which was paid on May 26, 1994. The Partnership
expects that cash flows from operations and distributions received
from joint venture for the remainder of 1994 will be sufficient to
fully fund capital improvements and distributions to Limited and
General Partners.
During the first two quarters of 1994, the Partnership incurred
approximately $1,300,000 for building improvements, tenant
improvements and leasing commissions, including approximately
$722,000 in tenant improvements primarily for a significant
expansion by an existing tenant at the United Services Life
Building, and approximately $289,000 in tenant improvements
primarily for the renewal of the lease of the largest tenant at the
Glenhardie Corporate Center.
In fiscal 1994, the Century Square joint venture settled a
lawsuit with the developer of the property. Pursuant to the
settlement, the joint venture received $835,000 in 1994. The
proceeds were distributed to the co-venturers according to their
interests; accordingly, the Partnership received $626,250. The
joint venture will receive an additional $100,000 in each of fiscal
years 1995 and 1996.
On May 26, 1994, the Partnership paid a cash distribution of
$10.00 per Unit to the Limited Partners. The total distribution
aggregated $1,966,922 with $1,770,230 distributed to the Limited
Partners and $196,692 to the General Partners.
Prior to 1993, the Partnership had borrowed $4,250,035 on a
$5,000,000 line of credit established with a bank. Interest on such
borrowings accrued at the prime rate plus three quarters percent.
The Partnership repaid the loan in June 1993.
Operations
Fluctuations in the Partnership's operating results for the
three-month and six month periods ended April 30, 1994 compared to
the comparable periods ended April 30, 1993 are primarily
attributable to the following:
The decreases in rental income are primarily due to the sale of
the Sardis Crossing property in May 1993 and a lower average
occupancy level at Glenhardie Corporate Center I and II during the
six months ended April 30, 1994.
The increases in equity in earnings of joint venture are
primarily attributable to increased income from the Taxter Corporate
Park property as a result of lower depreciation resulting from the
writedown of the property in 1993.
The increases in interest and other income primarily relate to a
lease termination fee received at Framingham Corporate Center during
the second quarter of 1994.
The decrease in property operating expenses for the six months
ended April 30, 1994 compared to the comparable period ended April
30, 1993 is attributable to decreased operating expenses at the
Glenhardie office buildings and the sale of the Sardis Crossing
property, partially offset by increased professional fees incurred
in connection with the lawsuit against a construction contractor at
the Century Square office building.
The decreases in depreciation and amortization are due to a
substantial portion of tenant improvements and leasing commissions
becoming fully depreciated or amortized in 1993 at the United
Services Life and Pavilions at East Lake properties, and the sale of
the Sardis Crossing property. These decreases are partially offset
by amortization and depreciation on leasing commissions and tenant
improvements incurred at the United Services Life Building and
Glenhardie Corporate Center in fiscal 1993 and 1994.
The decreases in interest expense are due to the repayment of the
bank loan in June 1993.
A summary of the markets in which the Partnership's office
properties are located and the leasing status of each property is as
follows:
The Boston suburban office market, the location of the Framingham
Corporate Center, has experienced a significant decline, and a high
vacancy level which is expected to persist throughout the next
several years. Occupancy at the Framingham property increased from
97% to 98% during the second quarter of 1994. No significant space
is up for lease until 1996.
The office market in Westchester County, New York, the location
of Taxter Corporate Park, has experienced a significant decline.
The current vacancy level in the Westchester office market is
approximately 27%, as many major tenants in the market are
consolidating their operations. It is unlikely that this vacant
space will be absorbed in this market for several years. During the
second quarter of 1994, occupancy at the property increased slightly
from 97% to 99%. No significant leases expire before 1996. One of
the tenants owns a long-term leasehold interest in approximately 20%
of the space at the property; this tenant does not pay rent, but is
responsible for its share of real estate taxes and certain operating
expenses.
Glenhardie Corporate Center I and II are located in the mid-range
office building market in Valley Forge, Pennsylvania, where the
vacancy rate has decreased to approximately 13% as a result of
significant absorption in the market since January 31, 1993.
However, the market is extremely price-competitive. The market is
characterized by many smaller tenants who demand and receive
extremely favorable lease terms. Larger tenants in this market have
less flexibility due to the lack of construction during the last
four years. Occupancy at Glenhardie decreased from 97% to 87%
during the second quarter of 1994.
In Pasadena California, the location of the Century Square office
building, the office market overall vacancy rate was approximately
13% during the second quarter of 1994. However, the vacancy rate is
expected to increase during 1994 due to anticipated downsizing by
two large corporations headquartered in Pasadena. Century Square
remained 100% leased during the first quarter of 1994, and its
leases with Countrywide Credit, which rents over 90% of the leasable
space at the property, do not begin to expire until 1998.
The office market in Bellevue, Washington, the location of the
United Services Life Building, has weakened as growth of the
market's major tenants has slowed down. However, occupancy at the
United Services property remained at 96% during the second quarter
of 1994. United Services Life, which occupies approximately 14% of
the building's net rentable space lease expires in April 1995.
Retail properties through the country have been adversely
affected by overbuilding and the financial weakness of several large
and midsize retailers. Although many of the anchor tenants in the
Partnership's retail properties have signed long-term leases, they
may face increasing competition in the near future from large
specialty or discount retail stores. This increased competition
could also affect the performance of smaller tenants.
Pavilions at East Lake is located in an area of suburban Atlanta
which experienced significant retail development in the 1980's.
Retail occupancy in the area eroded during the recession.
Additionally, a new shopping center recently opened which directly
competes with the property. Increasing vacancies and downward
pressure on rents are expected to continue in the near term.
Occupancy at the Pavilions property increased slightly from 86% to
87% during the second quarter of 1994. The lease of A&P, the anchor
tenant, is in place until 2006; no other significant leases expire
prior to 1995.
Wallkill Plaza, located in Wallkill, New York, has been affected
by both the recession and new retail development. A regional mall
opened in the area in mid-1992. As a result, rental levels, which
have already experienced a decline, may experience further downward
pressure. During the second quarter of 1994, occupancy at the
property remained at 87%. The leases of the two anchor tenants are
in place until 2006; no other significant leases expire until 1996.
Inflation
Inflation has been consistently low during the period presented
in the financial statements, and, as a result, has not had a
significant effect on the operations of the Partnership or its
properties.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings - not applicable.
Item 2. Changes in Securities - not applicable.
Item 3. Defaults upon Senior Securities - not applicable.
Item 4. Submission of Matters to a Vote of Security Holders -
not applicable.
Item 5. Other Information - not applicable.
Item 6. Exhibits and Reports on Form 8-K.
a) Exhibits - not applicable.
b) Reports on Form 8-K - Report dated May 10, 1994 of the
valuation per Unit of Limited Partnership interest at
December 31, 1993.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DEAN WITTER REALTY INCOME
PARTNERSHIP II, L.P.
By: Dean Witter Realty Income
Properties II Inc.
Managing General Partner
Date: June 14, 1994 By: /s/E. Davisson Hardman, Jr.
E. Davisson Hardman, Jr.
President
Date: June 14, 1994 By: /s/Lawrence Volpe
Lawrence Volpe
Controller
(Principal Financial and
Accounting Officer)
